Taxation and marijuana

The Orange County RegisterPublished: July 24, 2014 4:00AM

The states of Colorado and Washington ushered in what is likely to be a continuing trend when in November 2012 voters approved ballot measures legalizing the recreational use of marijuana. Both states started implementing the laws this year.

However, legalization advocates who crafted the measures are discovering that a number of governmental controls they included to maximize the likelihood of passage are coming back to bite them.

In Colorado, marijuana stores opened Jan. 1. Stores in Washington opened in early July. But the rollout of the recreational marijuana market has been hampered by restrictive taxation, licensing and other regulations, such as zoning restrictions and strict inspections.

Washington imposes a 25 percent excise tax on both wholesale and retail sales of marijuana. Colorado imposes a 15 percent tax on wholesale purchases and a 10 percent sales tax on retail sales.

Initiative 502 in Washington allows the state to issue up to 334 licenses for marijuana stores, yet only 24 had been issued as of earlier this month. This included just a single, 620-square-foot store in all of Seattle the first week stores were allowed to open. In addition, there were 2,600 applications for grower licenses, but only 80 licensed have been issued.

And since licenses were only issued in March, there has not been time to grow enough crops to meet demand. This will abate over time, however, and prices will fall a bit as supply increases.

High prices are, indeed, a problem. Because of all the state taxes and regulations, prices for legal marijuana are reportedly two to three times higher than the black market price on the street.

"There's no way they are going to eliminate the black market with something that's totally unresponsive to a market at all," marijuana activist Douglas Hiatt told U.S. News & World Report. "You're going to see very quickly the problems when you try to do things Soviet style. When you're using universally rejected planning economy theory, you're going to reap disaster."

Legalization advocates also made a deal with the devil when they touted all the tax revenue states would rake in as a reason for supporting legalization. But consenting adults own their own bodies and should be able to control what goes into them. And if a product or activity is legal and does not harm anyone else, it should not face punitive taxes or regulations in the first place.

People would generally prefer to purchase marijuana legally, but if the state taxes and regulates the product to the point where it is significantly cheaper and easier to get it on the street, they are going to have the same problems with gangs and cartels running the business instead of law-abiding business owners.

This increases public safety risks to consumers and the public.

It would be better to reduce taxes and regulations and allow consumers and sellers to operate in the free market -- not the black market.